Tom Nicholls: Algeria plays down Russian energy alliance

There’s nothing sinister about Sonatrach’s alliance with Gazprom, says Algeria’s energy minister Algerian energy minister Chakib Khelil has played down the significance of Gazprom’s alliance with Sonatrach, insisting it has nothing to do with exerting greater control over gas markets. “All it says is both companies will work together to establish joint projects,” said Khelil at a press conference in Barcelona on Friday. “There is no agreement to corner markets.” Khelil: There’s nothing special about the agreement Last August, Gazprom and Sonatrach signed a memorandum of understanding (MOU) “for deeper co-operation between the companies”. Areas covered by the MOU include exploration; production; transportation; gas transmission and distribution; and oil processing and marketing. So far, nothing concrete has emerged from the agreement, but the announcement gave rise to feverish speculation that Russia and Algeria were plotting to use their combined market power – together they account for over a third of the European Union’s gas imports and their market share is rising – to increase gas prices. Khelil, however, insists that is not the case. He also said any attempt to control European and global gas markets would be unsuccessful. A cartel of gas producers, along the lines of Opec, would not work, he has argued in the past, because of the lack of liquidity in the market, with most volumes tied up in fixed long-term contracts. In addition, he said, attempts to control the European market would fail because much of it is already monopolised by Europe’s state-owned companies, such as Gaz de France, through which Sonatrach must sell in order to gain market access. Indeed, Khelil called on European governments to allow Sonatrach to sell gas directly to consumers; this, he said, would be to the benefit of consumers because it would lower prices by cutting out the middle man. It may be that the much talked about MOU between Gazprom and Sonatrach proves to be insignificant. Grand-sounding agreements are often signed between energy companies or states and often yield very little in the way of practical action. It was thought that Sonatrach’s expertise in gas liquefaction, and LNG shipping and marketing were the areas that would be of greatest use to Gazprom. However, Sonatrach is not one of the four companies shortlisted for participation in the Baltic LNG project, which will have a capacity of between 5 million and 7.2 million tones a year and is to be built near the Primorsk oil terminal. A decision on which two foreign companies will participate is likely to be taken in the autumn.